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Why Chemtura Shares Reacted Poorly

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chemtura (NYSE: CHMT  ) , a maker of specialty chemical solutions and consumer products, fell as much as 12% after reporting its fourth-quarter earnings results and receiving an analyst downgrade.

So what: For the quarter, Chemtura reported an 8% increase in revenue to $622 million as its AgroSolutions and consumer product segment performed better than expected in an otherwise typically weak quarter. However, Chemtura only delivered $0.15 in adjusted EPS, which is far less than the $0.31 that Wall Street analysts had been expecting. Furthermore, Chemtura's CEO, Craig Rogerson, referred to the upcoming first-quarter as "challenging" – never a word an investor wants to hear with regard to guidance. Following this report, Oppenheimer downgraded Chemtura to perform from outperform, noting that its margin expansion had reached a plateau.

Now what: There probably isn't a sector in the market that more closely follows the ebb and flow of economic activity like the specialty chemicals sector. Chemical sales and pricing are only beneficial if we're seeing moderate to rapid global expansion -- and at the moment that's far from the truth. Chemtura isn't particularly expensive at roughly nine times forward earnings, but considering its CEO's comments I'm inclined to believe that its estimates could come down in short order. It's a potential value name worth adding to your watchlist, but I'd need to see the proposition of stable global growth before diving into a chemical company like Chemtura.

Craving more input? Start by adding Chemtura to your free and personalized Watchlist so you can keep up on the latest news with the company.

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9/23/2016 4:02 PM
CHMT $28.18 Up +0.63 +2.29%
Chemtura CAPS Rating: ****